Budget 2026: FM shifts buyback taxation to capital gains for all shareholders
Budget 2026: FM shifts buyback taxation to capital gains for all shareholders
Finance Minister Nirmala Sitharaman, on February 1, proposed a change in the taxation of share buybacks, announcing that buyback proceeds will now be taxed as capital gains for all shareholders. She added that promoters will additionally be liable to a buyback tax. The proposal was unveiled while presenting the Union Budget 2026.
The finance minister also announced an increase in the Securities Transaction Tax (STT) on futures, raising it to 0.05 percent from 0.02 percent. Following these announcements, equity markets witnessed a sharp sell-off. The Sensex plunged over 1,500 points to 80,740.23, while the Nifty 50 dropped nearly 500 points to 24,820.15 by 12:35 pm.
Expert reaction: Buyback tax change termed ‘welcome’
Amit Gupta, Partner at Saraf and Partners, described the revision in buyback taxation as a positive step. He noted that earlier budget changes had treated the entire buyback amount as dividend income to curb promoter-led profit extraction and misuse. “Reverting buyback taxation to capital gains is a welcome move and should address taxpayer concerns surrounding the buyback route,” Gupta said.
However, Gupta cautioned that the sharp hike in STT on futures and options—coming on top of last year’s increase—could significantly raise transaction costs for traders, hedgers, and arbitrageurs. “This is likely to dampen derivative activity and result in lower market volumes,” he added.
